The patent troll problem has caught the attention of both the federal government and the states as well. Many state attorneys general have taken an aggressive stance on the patent troll issue, and AGs from Nebraska, Vermont and Missouri will be discussing the patent troll problem at a roundtable event in New York City on Feb. 4. One attorney general who has thrown the weight of her office into dealing with the trolls is Martha Coakley. She recently sat down with Bernard Nash, partner in the state attorneys general practice at Dickstein Shapiro to discuss the topic.

Coakley: “Patent trolling” is when individuals or entities acquire overly broad patents with the aim of making money by asserting typically baseless claims of patent infringement to extract fees or settlements from individuals, non-profits, or companies. Such threats or actions are not really intended to lead to an adjudicated result, but rather to extort licensing fees or other settlement payments. Patent trolls often hide behind a number of shell companies in asserting their claims, and none of them actually invent or produce any products with their claimed patents.

Nash: What motivated you to devote resources to this issue?

Coakley: First, the targets of patent trolls face substantial costs in either combatting or paying off patent trolls to buy peace. But the cost of patent trolls goes beyond companies targeted. Frivolous lawsuits and threats by patent trolls are serving as an anchor on our start-up companies and dragging down our innovation and our economy as a whole. Resources that could be spent developing the next Facebook or Google, and supplying good jobs for current and future generations, are being wasted addressing baseless claims.

Nash: Why does this issue lend itself to action by State AGs?

Coakley: State consumer protection laws prohibit false, misleading, deceptive, and unfair statements in commerce. When a patent troll sends a letter to a small company, non-profit, start-up, or even a well-established company that asserts claims to property that the troll knows to be false, or threatens legal action that the troll has no intent of bringing, in order to extort money, that is against the law.

Nash: I think most people think of the federal government’s Constitutional authority over intellectual property when they hear about patent trolls. Do AGs risk infringing on federal power when acting in this space?

Coakley: It is important to distinguish between different aspects of the issue of patent trolls. It is not the patent process itself that AGs are focusing on, although some of us may have ideas how to improve it, but our focus is the abuse of the system by bad actors. The cases on which we are focusing are not like when two companies fight over who first invented something or whether prior art invalidates a patent. What we are really talking about are individuals and entities that know or should know they have no real basis for the claims they are making and who take advantage of the complexity of the patent system and expense of intellectual property lawyers and experts to extort money from legitimate businesses.

Nash: You hinted at something interesting there—how do you strike a balance between stopping “real” patent trolls and not infringing on the rights of innovators or businesses seeking to enforce legitimate property interests?

Coakley: It certainly requires discretion and attention to the facts of each case. As I said earlier, a primary concern is the impact trolls have on innovation, so we as AGs do not want to interfere in that process. Two large, established companies fighting over patent validity or ownership is not something we as AGs are typically concerned about. Non-practicing entities present unique challenges for regulators, lawmakers, and policymakers, and AGs will be very judicious in this space. Legitimate NPEs may facilitate companies’ ability to monetize intellectual property in a secondary market, but we must make certain such entities are not abusing their position to stifle innovation and economic growth or abuse the patent system. That said, entities that set up shell companies to hide their identities, that make false statements and claims, that abuse the legal system and target smaller or weaker companies and individuals—that is without a doubt something AGs can and should take action to combat.

Nash: But are AGs really equipped to address this issue?

Coakley: Absolutely. AGs have broad powers to investigate potentially deceptive and unfair practices. Most of us can issue investigative subpoenas to discover what is really going on, which as I mentioned above is particularly useful in distinguishing between real trolls and those with legitimate property interests. Moreover, if we do find someone who is engaged in unlawful conduct, we can enjoin those practices or enter into an assurance of compliance or consent judgment requiring the troll to modify or halt their misconduct.

Nash: One thing that has struck me about this issue is how it transcends party lines, drawing attention from Democrats and Republicans alike. Has the same thing struck you?

Coakley: Definitely, although that is not really all that surprising in the broader context of consumer protection. All AGs, regardless of party, have an interest in keeping our consumers safe, encouraging our economies to grow, and stopping fraud. Our offices have long worked together on these issues, including through the National Association of Attorneys General and multistate working groups. In patent trolls, you have specific practices that entities across the country engage in, and because the practices involve sending letters and filing lawsuits, patent trolls can easily cross state lines to target individuals, companies and non-profits across the country. This is precisely the kind of activity that AGs excel at cooperating to combat.

Nash: As you know, the House has recently passed legislation intended to address the abuse of the patent system, and the FTC also is looking at the issue. Do you think AGs will step into the background now that the federal government is acting?

Coakley: Not at all. The FTC is still in its initial phase of looking at this issue, and while the legislation passed by the House, which I understand the President supports, is a good first step, there is a lot left to be done. As our states’ chief law enforcement and consumer protection officials, AGs have the ability to act quickly to investigate and stop abuses. Our state consumer protections acts and other powers allow us to take independent action within our own states, which can be especially useful in shutting down the actual companies that are out there acting as patent trolls right now. At the same time, AGs have a long history of working with our federal counterparts on many complex issues, from healthcare fraud to financial issues to the environment. I think this is another such issue where AGs can and are fulfilling a similar, complementary role.

Nash: What do you see coming up next on this issue?

Coakley: I think you will see AGs continue to look at those entities in their jurisdictions that are abusing the patent system. There already have been some lawsuits and settlements against patent trolls, and more will come as we hear about entities from our constituents and other AGs. There is a working group of the National Association of Attorneys General looking at this topic and developing ideas and methods by which AGs can be effective. Also, as I said, I believe AGs will continue to work alongside the FTC and with Congress to determine what changes in laws and regulations can best thwart the abuse of the intellectual property system by bad actors while preserving the incentive to innovate. I believe there will be opportunities for AGs to shape federal legislation through joint sign-on letters and further testimony before Congress, and there may be opportunities for AGs to file amicus briefs and take other measures to influence policy and lawmaking on this subject.

The patent troll roundtable will take place from 3-5pm on Feb. 4 at the New York Intercontinental Barclay. In addition to attorneys general from Vermont, Nebraska and Missouri, general counsel from Walmart, du Pont and Rackspace will be in attendance. For more information on the event or to register, click here.